Saudi Aramco and Indonesia’s Pertamina are expected this week to make significant progress in establishing a joint venture that will include a $5 billion upgrade to the largest refinery complex in Indonesia, an executive with the Southeast Asian company told Reuters.
A joint venture would be a major victory for Indonesian President Joko Widodo. Since taking office last October, he’s launched major reforms of the energy sector in an effort to improve the image of the country’s energy industry and restore investor confidence in the largest oil producer in Southeast Asia.
The Cilacap oil refinery; Photo: snipview.com
As part of his reforms, the entire board of directors of Pertamina was recently replaced. The new board will ink a deal with Saudi Aramco to perform a FEED for the upgrade to the Cilacap oil refinery (with a 270,000 bpd capacity) located in Central Java, Pertamina Finance Director Arief Budiman told Reuters.
He added, “Hopefully this week we will agree on the next stage…FEED involves a significant investment, typically up to 10-15 percent of the actual project cost.”
The Cilacap refinery is Indonesia’s largest such facility and has been subject to several upgrades and additions since it started operations in 1976.
Indonesia is expected to rejoin OPEC next week at the 12 member group’s meeting in Vienna. For years, it has been trying to persuade Saudi Aramco to invest in its struggling downstream sector, but fiscal terms and tax issues have stalled progress. Budiman told Reuters that the Indonesian government was creating several “incentive schemes” that should help address these concerns.
Pertamina would own a majority stake in the Cilacap refinery in the joint venture (a precise percentage hasn’t been finalized, though) and Saudi Aramco would own the remainder.
Reuters reports that a deal would also probably include a deal to import Saudi crude oil for use in the Central Java refinery, as well as other facilities in the country.
Budiman told Reuters that Pertamina was also nearing a joint venture agreement with Japan’s JX Nippon Oil & Energy Corp to upgrade a refinery in East Kalimantan.